November 27, 2016

I Can’t Carry This Anymore. Should I Sell?

A report from MENAFN-AFP on China. “Chinese household debt has risen at an ‘alarming’ pace as property values have soared, analysts say, raising the risk that a real estate downturn could send shockwaves through the world’s second largest economy. Loose credit and changing habits have rapidly transformed the country’s famously loan-averse consumers into enthusiastic borrowers. the debt owed by households in the world’s second largest economy has surged from 28 percent of GDP to more than 40 percent in the past five years. The share of household loans to overall lending hit 67.5 percent in the third quarter of 2016, more than twice the share of the year before. ‘The notion that Chinese people do not like to borrow is clearly outdated,’ said Chen Long of Gavekal Dragonomics.”

“But this surge has raised fears that a sharp drop in property prices would cause many new loans to go bad, causing a domino effect on interest rates, exchange rates and commodity prices that ‘could turn out to be a global macro event,’ ANZ analysts said in a recent note. Banks are also driving the phenomenon, Andrew Polk of Medley Global Advisors told AFP. ‘Banks have been pushing people to buy houses because they need to make loans,’ he said, as corporate borrowing has dried up.”

From Bloomberg on the UK. “U.K. real estate prices may be dropping at a much faster pace than official reports indicate, according to the Irish agency that manages property loans acquired from bailed-out banks. Earlier this month, Stephen Vernon, chairman of Dublin-based Green Property, said London’s real estate market is ‘tanking by the day.’”

The Review Online on South Africa. “While the importance of pricing a property correctly in order to sell it within a reasonable amount of time has been stressed countless times, the current buyer’s market coupled with a sluggish economy has made correctly pricing a property paramount to the sale happening at all, never mind within a reasonable amount of time, according to Debbie Justus-Ferns, divisional manager of Renprop Residential Sales.”

“‘Testing the market in order to ascertain what buyers would potentially be prepared to pay is not advisable for any seller right now,’ she says. ‘This strategy will often put any prospective buyers off as they have other properties to choose from. As a result, an overpriced property will just end up promoting the purchase of a comparative or similar property that is priced correctly.’”

From The Australian. “Brisbane’s apartment construction boom has spurred a ‘flight to quality’ as renters move from old suburban flats into new apartments, in a phenomenon set to be watched by the Reserve Bank. Brisbane renters are exploiting the more than 5200 new apartments built in the first nine months of the year to vacate suburbs between 5km and 15km from the central business district. The rollout of an expected 13,000 more apartments over the next 18 months in inner-city Brisbane, along with 16,000 more in Melbourne’s inner suburbs in two years, is being monitored by the Reserve Bank as the key areas for potential future oversupply.”

“In order to keep up sales and rents, developers are offering a range of incentives to get people into their apartments. Increasingly, short-term rental guarantees of up to 5 per cent gross are being advertised, while others will throw in furniture packages, pay body corporate rates or shell out for furnishings. A completed four-townhouse development in Morningside offered a Kia Picanto car to the first buyer to go unconditional. Ray White Bulimba agent Jared Candlin said the bonus car promotion was ‘a way to get people’s attention’ in the crowded marketplace. ‘But with what is going on with the amount (of units) available, people might just miss them because they are looking at so many.’”

The Calgary Sun in Canada. “Close to 40% of Calgary’s available rental listings are unoccupied, according to a local property management company which says the weak market has become a major source of financial stress for small, private landlords. ‘I have never seen it this grim before,’ said Shamon Kureshi, CEO of Hope Street Real Estate Corporation. ‘I have never seen this level of difficulty for landlords trying to find a tenant.’”

“Kureshi said big companies are far better positioned to manage the declining market conditions than ‘mom and pop’ landlords. ‘We’re talking about the people who are renting out their basement suite to make ends meet or the family who’s maybe invested in a second house that they’re renting out for the purpose of retirement savings,’ he said. ‘I’m probably getting two, three, sometimes five calls a day from these people saying, ‘I can’t carry this anymore. Should I sell?’”

“Rebecca Yarmoloy — who together with her husband bought her first rental suite in 2013 and now owns a total of four properties in Calgary — said the past year has been challenging, with each of the suites vacant at times, occasionally for up to three months in a row. She said they now allow pets in their suites, something they never would have considered before but have been doing to make their properties more appealing to renters.”

“‘When we first bought we were getting top dollar for all of our suites,’ Yarmoloy said. ‘We’ve definitely taken a big pay cut on all of them, as well as struggled to find tenants. We’ve had to reduce all of our rents substantially, and we’ve also just had trouble finding good people.’”

The Uncertainty Hasn’t Gone Away

A report from the New York Times. “When Jared Rutledge called his mortgage broker one morning last week after putting in an offer on a home in Glendale, Ariz., just west of Phoenix, he discovered that the 3.8 percent rate he had been quoted a couple of months ago had already gone up to 4.125 percent. That afternoon, it had inched up to 4.25, and by evening, when he finally called back to finalize the deal, it was 4.375 percent. ‘I was kind of frustrated,’ Mr. Rutledge said. But with a third child on the way, and a buyer for their current home, he and his wife felt they had little choice. ‘Instead of holding out and waiting, we locked it in,’ he said.”

“Since the election, mortgage rates have climbed roughly half a percentage point to a 16-month high, adding hundreds, sometimes thousands, of dollars to a home buyer’s yearly payments. The speed and size of the increase took many lenders and borrowers by surprise — and the increase is expected to reverberate across the housing industry, particularly if rates continue to rise next year.”

“Higher rates are often followed by a burst of activity from consumers worried about further increases. But Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he had not seen evidence of pent-up demand. He thinks housing activity is heading for a fall. Even before this latest bump in rates, he was concerned about a drop in mortgage applications. Mortgage standards have tightened this year, he said, making it more difficult for buyers to qualify despite the steady uptick in wages.”

“‘Even if applications don’t go down further,’ Mr. Shepherdson said, ‘we are looking at a significant drop in home sales in the first quarter of next year.’”

From Cronkite News in Arizona. “In September, Angel Diaz bought a house. As he signed the home-purchase documents, he remembered emerging from the hot desert as an 8-year-old unauthorized Mexican immigrant, barely able to hold his own water bottle after three days of walking the migrant trails. Diaz is now 22 and a pre-law student at Paradise Valley Community College who works fulltime at an insurance agency. He obtained temporary relief from deportation under a 2012 Obama administration directive known as Deferred Action for Childhood Arrivals, or DACA.”

“He’d missed meals to save $6,000 as a down payment to buy the $153,000 home in northwest Phoenix, and now he has a home he, his mother and two sisters could call their own. Now, all that could change. ‘At this point, even, I don’t know what’s going to happen,’ Diaz said.”

“President-elect Donald Trump had vowed on the campaign trail to revoke DACA, adding DREAMers like Diaz to a group of about 11 million undocumented immigrants Trump said he’d deport. And while experts say deporting the nation’s undocumented would create administrative backlogs and massive legal hurdles, mass deportations could impact the nation’s housing market. About 3.4 million unauthorized immigrants may own homes, the Migration Policy Institute, a nonpartisan immigration-issue think tank, reports. In Arizona alone, about 89,000 undocumented immigrants may own homes, the insitute reports. The institute doesn’t break down numbers for DREAMer homeowners, like Diaz.”

“‘I rarely cry,’ Diaz said. But he did after the election. He felt a flood of emotions including frustration, disappointment, uncertainty and helplessness. The uncertainty hasn’t gone away. But, he said, he has chosen to ‘hope for the best.’”

From Star-Ledger in New Jersey. “Lacey is a large municipality in Ocean County, one of the reddest regions of New Jersey. And in this election, Lacey was the second reddest of the red. In New Jersey towns with more than 10,000 people, only nearby Lakewood had a greater percentage of voters (74.4) who pulled the lever for president-elect Donald Trump. This was not surprising. Seventy-two percent of Lakewood, with its high population of very conservative Hasidic Jews, voted for Mitt Romney in the last election.”

“But while Lacey voters also went overwhelmingly for Trump (70.1 percent) they are not quite as historically red as Lakewood. In the last election, 59.1 percent voted for Romney. In the 99-square-mile township of just fewer than 30,000 residents, there are yacht clubs and marinas along Barnegat Bay, surrounded by modern homes that sell north of $750,000. But interspersed within these lagoons and boating developments are square, tiny bungalows — old beach houses now converted to year-rounders that can be bought for about $100,000 or less.”

“In those neighborhoods, the residual impact of Hurricane Sandy can still be seen. There are homes that are still vacant, under construction or in foreclosure. One of those homes belonged to Nancy Wirtz, who voted for Trump because of the bureaucratic mess encountered with FEMA and state government after her house was damaged by the storm. She got an insufficient insurance payout, then had a state-approved contractor disappear with her money. Foreclosure followed.”

“‘It is absolutely why (she voted for Trump),’ she said. ‘I lost my home, I was foreclosed on, because I got screwed at every turn. We need some change.’”